Depreciating a Company Car: Rules and Tips

If you are additionally required to prepare a balance sheet under commercial law, you may independently choose a different depreciation method for that purpose.

Most self-employed individuals are solely interested in the tax treatment: as with other acquisitions, they spread the depreciation of the vehicle over the period of the standardised useful life — the official depreciation schedules (AfA-Tabellen) are relevant here.

The abbreviation AfA stands for Absetzung für Abnutzung (depreciation for wear and tear). Please note that different rules may apply to electric company vehicles. The state promotes the purchase of environmentally friendly vehicles through various measures.

The depreciation schedule (AfA-Tabelle) sets the useful life of a company car at six years: over this period, the acquisition costs increase your business expenses in equal instalments. If your new car costs 30,000 euros, for example, you depreciate 5,000 euros six times.

When calculating the depreciation for your car, you may take the following costs into account:

• Acquisition costs including optional extras
• Permanently fitted technology such as radio and navigation system
• Advertising livery
• Body modifications
• Delivery and first-registration costs

Subsequent modifications, such as applying an advertising logo, are accepted by the tax office if you incur these costs in the year of acquisition. Costs arising later must be handled separately. The same applies to extras that are not permanently fitted in the vehicle and do not count as optional equipment.

If you purchase a used vehicle as a freelancer or trader, special rules apply. The strict provision on the six-year depreciation period for cars does not apply; instead, the following aspects, among others, are relevant:

• Age
• Mileage to date
• Planned use (km per year)

For a planned average annual mileage of around 15,000 to 20,000 km, the following guidance is a useful starting point: set the remaining useful life at five years for a vehicle that is one year old, four years for two years old, and three years for three years old.

The total useful life is then six years in each case. If the company car is four years old or more, the tax offices generally accept a remaining useful life of two years. For older used vehicles, the total useful life may exceed the six-year limit.

The state encourages businesses to invest in environmentally friendly vehicles. This public subsidy policy is intended to strengthen climate protection. Tax legislation to date has provided for a special depreciation allowance for certain types of electric vehicle; companies make use of this particularly when acquiring electric vans and other electrically powered commercial vehicles.

When you purchase a new vehicle, you may claim a special depreciation allowance (Sonder-AfA) of 50% of the acquisition costs in addition to the normal depreciation. This results in a substantial and immediate tax saving.

For ordinary electric company cars a special depreciation allowance has not previously been available — however, you do achieve a tax saving when taxing the private-use element. For electric vehicles, you may reduce the tax base for the private-use calculation to one quarter of the gross list price!

The tax rules on depreciation of electric cars change frequently: as part of the 2022 Climate Action Programme, for example, the Federal Government was planning a fundamental reform from the beginning of 2023. It intends to restrict the special depreciation allowance to fully electric vehicles, excluding hybrid vehicles.

The good news is that the 50% special depreciation allowance (Sonder-AfA) on acquisition costs would then apply to ordinary electric company cars as well. Contact your Guhr Steuerberatung in Berlin — we will explain the current state of the law and advise you on whether you should wait before acquiring company vehicles!

Free initial consultation

Taxes not your thing? Then they're ours.

Guhr Steuerberatung handles your bookkeeping, tax returns and tax planning – so you can focus on your business.

Request a consultation

• Image source: jeshoots.com - Pexels.com